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By XE Market Analysis February 7, 2019 6:45 am
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    XE Market Analysis: North America - Feb 07, 2019

    The Dollar has remained on a firm footing while Euro underperformance has been a side theme so far today. EUR-USD has printed fresh a 13-day low, at 1.1331, putting the pair in the lower reaches of the broadly sideways range that's been unfolding for some three months now. EUR-JPY also fell to one-week lows, and EUR-CHF to nine-day lows. Incoming Eurozone data has continued to paint a picture of slowing momentum, the latest being an unexpected 0.4% m/m contraction in German industrial production in December. This follows data yesterday showing a 1.6% m/m drop in December Germany manufacturing orders. The European Commission also cut its Eurozone 2019 growth forecast, to 1.3% from 1.9%, while highlighting the "large uncertainty that is still surrounding Brexit." Cable printed a two-week low at 1.2895. Data showed UK house prices to have fallen 2.9% m/m in January while, regarding Brexit, the UK prime minister is in Brussels today in what looks like a forlorn effort to persuade the EU to make legally-binding concessions to the Irish backstop or replace it with as yet unspecified "alternative arrangements." USD-JPY has been buoyant in the upper 109.0s, although remaining below 110.00 and recent highs. Risk appetite remains muted in global markets, with investors in a non-committal stasis ahead of next week's U.S.-China trade talks. Stock markets were mostly lower in Asia, while the European Stoxx 50 was down 1% as of the early PM. S&P 500 futures were down by 0.7% after the cash version of the index closed on Wall Street yesterday with a 0.2% decline.

    [EUR, USD]
    EUR-USD has printed fresh a 13-day low, at 1.1331, putting the pair in the lower reaches of the broadly sideways range that's been unfolding for some three months now. The Dollar has continued to benefit from the resonance of last Friday's strong January employment report, and other data, which have collectively seen market participants reappraise the Fed's policy pause. Incoming data on the Eurozone side of the pound, meanwhile, has been painting a picture of slowing momentum, the latest being an unexpected 0.4% contraction in German industrial production in December. This follows data yesterday showing a 1.6% m/m drop in December Germany manufacturing orders. Brexit uncertainty is also in the mix, which January PMI reports evidenced as having a material impact on economic activity on the British side of the channel, which will have some drag on the continent's side. The European Commission cut its Eurozone 2019 growth forecast to 1.3% from 1.9% while highlighting the "large uncertainty that is still surrounding Brexit." We expect EUR-USD to see further downside. Resistance comes in at 1.1380-82, and support at 1.1347-50.

    [USD, JPY]
    USD-JPY has been buoyant, although remaining below 110.00 and recent highs. The Dollar has continued to benefit from recent strong data, which led Fed Chairman Powell to remark yesterday that the economy is "in a good place." Risk appetite remains limited. Stock markets have been mixed in Asia, while S&P 500 futures are showing a 0.3% decline in overnight trading, after the cash version of the index close out on Wall Street yesterday with a 0.2% decline. The next round of trade talks between the U.S. and China, which take place in Beijing next week, is a major obstacle looming large on the radar screen. These talks will reportedly centre on the sensitive issue of intellectual property, which has been a major sticking point. Markets are somewhat nervous as the U.S., unless there is a breakthrough, is due to significantly hike tariffs on Chinese goods in just a few weeks time. Any disappointment would likely be a risk-off catalyst, and be a selling cue for USD-JPY.

    [GBP, USD]
    Cable printed a 16-day low at 1.2896 in what is now the sixth consecutive down day for the pairing. The pound has also ebbed versus the euro over the last week, although today is holding up better, with the common currency under some pressure following weak data out of the Eurozone. On the Brexit front, UK Prime Minister May is in Brussels today in what looks likely to be a forlorn attempt at persuading the EU to make concessions on the Irish backstop (such as time-limited it). Parliament is due to vote on the Withdrawal Agreement next Wednesday, though this is not set in stone and depends on how developments unfold. We expect the pound to remain downwardly biased for now. Incoming data have been shining a light on the impact that Brexit uncertain is causing. The BoE will announce policy later, where no change is expected to the repo rate and QE totals, but we expect the bank's quarterly Inflation Report to downwardly trim CPI and GDP projections. Cable has resistance at 1.2964-66, and support at 1.2830-31.

    [USD, CHF]
    EUR-CHF has sunk to eight-day lows under 1.1375, with the cross tipping lower by the force of broad declines in the Euro as incoming data continue to painting a picture of a stagnating Eurozone economy. Earlier in the week the cross had spiked to a three-month high at 1.1443. The price action continues a phase of relatively high volatility the cross has been experiencing. Since early January there have been several bouts of pronounced underperformance in the Swiss franc, often accompanied by talk/suspicions of SNB intervention. SNB Chairman Jordan said recently that "current monetary policy is the right one and we will continue to with it for some time." He said that for 2019 the biggest concerns are "political mistakes," pointing to the U.S.-China trade war and "Brexit and the European situation." Jordan also expressed concern about further safe-haven driven franc appreciation, "especially" in a no-deal Brexit scenario. SNB vice president, Zurbruegg, also said last month that the franc "remains highly valued" and the situation on foreign currency markets is "still fragile" and that the SNB's two pillar strategy of negative interest rates and ad-hoc currency interventions, or threat thereof, "remains appropriate."

    [USD, CAD]
    USD-CAD has lifted to eight-day highs above 1.3250, extending a recovery from last Friday's three-month low at 1.3068. A turn lower in oil prices this week has seen the Canadian Dollar come off the boil, while the U.S. Dollar itself has been broadly firmer following recent strong U.S. data. The Canadian Dollar still remains up by some 3%, at prevailing levels, against the U.S. buck on the year-to-date. This has been concomitant with the 20%-plus gain seen in oil prices over the same period. Sustain gains in crude prices are a boon to Canada's terms of trade. USD-CAD has support at 1.3221-23.

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